Climate Damages Tax

What is the Climate Damages Tax?

The Climate Damages Tax addresses the injustice of big coal, oil and gas making trillions in profits and shifting the burden of paying for the worst impacts of climate change onto communities in climate vulnerable countries.

It will tax the fossil fuel industry using the revenue to pay:

  1. for the costs of ‘loss and damage’ faced by people on the frontline of climate change and
  2. for ‘fair transition’ programmes to help communities move to a fossil free economy.

Fair Transition: the transition towards a low‐carbon and climate‐resilient economy that maximises the benefits of climate action while minimising hardships for workers and their communities.

Big Profits for Fossil Fuels

Fossil fuels are responsible for 70% of greenhouse gas emissions with oil, coal and gas companies reaping massive rewards from the materials they extract. In 2014, five corporations – Chevron, ExxonMobil, BP, Shell, BHP Billiton – made more than $80bn between them. Yet through a combination of tax avoidance and subsidies many of these companies pay little or no tax. For decades these companies have run a misinformation campaign calling into question the science to delay action from governments, so they can continue to make vast profits. Rather than dodging their responsibilities, it is time the industry paid for the consequences of their activities.

Climate Change is Destroying Lives, Today

Climate change was in the future, it is now in the present. Loss and damage caused by climate change is accelerating, hitting communities in a number of ways: climate-charged storms, such as the 2017 hurricane season; increasingly frequent and extreme droughts, which recently devastated East Africa; killer heat waves; sea-level rise stealing land and homes; melting glaciers; land degradation; and desertification.  The Paris Agreement recognises ‘Loss and Damage’ as a third pillar, alongside ‘Mitigation’ and ‘Adaptation’.

Mitigation: reducing emissions in order to lessen our carbon footprint to limit global temperature rise.

Adaptation: measures to adapt to the impacts of climate change, which include responses to rising temperatures.

Loss and Damage: when the impacts of climate change go beyond what it is possible to adapt to – this includes for example climate-charged super storms devastating whole regions; rising sea levels forcing people from their homes; extreme droughts destroying crops and livelihoods; arable land turning to desert.

Who Pays for Loss and Damage?

Climate-related loss and damage in developing countries will cost $300 billion per year within the next decade.

Rich countries have focused on insurance as the way to ‘finance’ loss and damage costs. This is unfair, as it pushes the responsibility for paying premiums onto the vulnerable, who played no role in creating the climate risk. Often these countries and communities can’t afford to pay insurance premiums. Even in the best case insurance typically pays out 1-2% of emergency costs of a big storm. Hurricane Maria caused $1.3 billion in damage to Dominica. They received just $19 million from the Caribbean Catastrophe Risk Insurance Facility. Insurance is also unsuitable for slow onset events like sea level rises, and will become less viable as extreme events become more common. In contrast, the Climate Damages Tax (CDT) will provide an additional, substantial, new revenue stream at the scale required.

How much would the Tax raise?

At a low level of US$5 per tonne of CO2e, the CDT would generate potential global revenues of $300 billion a year for loss and damage in climate vulnerable countries, and billions more for a fair transition towards green energy, jobs and transport, between 2030 and the required phasing out of fossil fuels in 2050.

The CDT would also contribute to the phasing out of fossil fuels due to the co-benefit of placing a global price on carbon. The CDT will impact on the industry’s profitability, incentivising it to diversify its activities. The CDT should increase each year both to contribute to the shift to renewables and to maintain the income stream for loss and damage spending as fossil fuels are increasingly phased out.

The Climate Damages Tax will:

  • Establish an international fossil fuel extraction tax paid to an international fund for Loss and Damage to help vulnerable communities suffering the worst impacts of climate change
  • Generate revenue to help communities transition to a fossil free economy
  • Contribute to phasing out fossil fuels by adding costs to the industry’s bottom line
  • Publically link the fossil fuel industry to the damage it causes – pressuring it to change its business model or risk its reputation with consumers and its influence over governments
  • Address factors of injustice and inequality by applying the CDT with a sliding scale. Countries at a low level of development would keep 100% of revenues from domestic extraction, with rich countries directing 50% of revenues to the international fund and spending 50% domestically on just transition policies.

Find out more about the Climate Damages Tax

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